Summary
From 1987 to 2003, the United States provided economic aid to the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) through a Compact of Free Association. A previous GAO report found little accountability for the assistance provided by the U.S. Department of the Interior under this compact. In 2004, amended compacts with the FSM and RMI went into effect and will provide $3.5 billion in assistance over 20 years, consisting of grants and contributions to trust funds that are to replace the grants after 2023. The amended compacts include funding and accountability requirements that were not present in the original compact. To better understand the status of the compacts' implementation, GAO evaluated actions taken by the U.S., FSM, and RMI governments since fiscal year 2004 to (1) meet funding requirements and plan for the use of this funding, (2) meet accountability requirements, and (3) establish operations to implement the new agreements.
In fiscal years 2004 and 2005, the U.S. government signed grant agreements with the FSM and the RMI focused on six sectors, such as health and education, as provided for in the amended compacts. Authorized grant amounts for each year were about $76 million for the FSM and about $35 million for the RMI. Required trust funds were also established. Strategic planning issues impacting the long-term, effective use of funds have not been addressed. The allocations of the grants to the sectors have not been linked to the countries' development goals; the FSM and RMI have not planned for annual required decreases in grant funding; and trust funds have not been invested to maximize interest earnings (though efforts are currently under way to resolve this final issue). The U.S., FSM, and RMI governments have taken actions to meet compact accountability requirements. For example, the FSM and the RMI have provided financial and performance reports, and the U.S. government has withheld funding to ensure compliance with grant requirements. However, a few important accountability requirements have not been met. For instance, the FSM's development plan has not been approved by the U.S. government, and it is unclear whether the U.S. government has assessed the RMI's planning documents. Finally, the FSM has not completed single audits for fiscal years 2003 or 2004, and none of the three governments has submitted its required annual compact spending and development report for fiscal year 2004. The Department of the Interior took a significant step in October 2003 to facilitate implementation and oversight of the amended compacts by opening a new office in Honolulu, Hawaii. However, Interior has not determined how much oversight of compact activities in the FSM and the RMI is necessary, though the current level of on-site review is viewed as insufficient. The FSM and RMI governments have each taken actions to establish centralized compact management offices; the RMI government is progressing more rapidly in these efforts than the FSM government.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
David B. Gootnick
Government Accountability Office: International Affairs and Trade
No phone on record
Recommendations for Executive Action
Recommendation: To effectively use Interior staff resources and to maximize the effectiveness of U.S. monitoring of compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs to determine, relative to other office responsibilities, the extent of Office of Insular Affairs on-site review in the FSM and the RMI of compact activities that is required in order to adequately promote compliance with compact and grant requirements.
Agency Affected: Department of the Interior
Status: In process
Comments: No action reported.
Recommendation: To improve grant administration and oversight and to facilitate planning for the effective use of compact funding, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management Committee, in coordination with other U.S. agencies that participate in this committee, to work with the FSM government to establish sector grant levels for each of the five governments that are consistent with national priorities and will assist in promoting long-term development goals such as economic advancement and budgetary self-reliance.
Agency Affected: Department of the Interior
Status: In process
Comments: No action reported.
Recommendation: To improve grant administration and oversight and to facilitate planning for the effective use of compact funding, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management Committee, in coordination with other U.S. agencies that participate in this committee, to work with the FSM government to establish a time frame for the completion of required and overdue FSM single audits.
Agency Affected: Department of the Interior
Status: Implemented
Comments: In our July 2005 report (Compacts of Free Association: Implementation of New Funding and Accountability Requirements Is Well Under Way, but Planning Challenges Remain, GAO-05-633) we recommended that the Secretary of the Interior direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management Committee (JEMCO: a joint U.S.-Federated States of Micronesia [FSM] committee), in coordination with other U.S. agencies that participate in this committee, to work with the FSM government to establish a time frame for the completion of required and overdue FSM single audits. In August 2005, Interior responded to our recommendation. Interior's Deputy Assistant Secretary for Insular Affairs, in coordination with other U.S. JEMCO participants (the Departments of State and Health and Human Services), proposed a resolution for consideration at the August JEMCO meeting stating that "JEMCO resolves that the FSM shall submit its audit plan and schedule for fiscal years 2003, 2004, and 2005 to the Office of Insular Affairs no later than October 1, 2005.? This resolution was adopted unanimously at the August 15-16, 2005 JEMCO meeting.
Recommendation: To improve grant administration and oversight and to facilitate planning for the effective use of compact funding, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management Committee, in coordination with other U.S. agencies that participate in this committee, to work with the FSM government to establish a time frame for the completion of FSM government plans to manage decreasing annual grant amounts and to shift basic government operations under the public sector capacity building to local revenues in a strategic fashion.
Agency Affected: Department of the Interior
Status: Implemented
Comments: In our July 2005 report (Compacts of Free Association: Implementation of New Funding and Accountability Requirements Is Well Under Way, but Planning Challenges Remain, GAO-05-633) we recommended that the Secretary of the Interior direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management Committee (JEMCO: a joint U.S.-Federated States of Micronesia [FSM] committee), in coordination with other U.S. agencies that participate in this committee, to work with the FSM government to establish a time frame for the completion of FSM government plans to manage decreasing annual grant amounts?in a strategic fashion. In August 2005, Interior responded to our recommendation. Interior's Deputy Assistant Secretary for Insular Affairs, in coordination with other U.S. JEMCO participants (the Departments of State and Health and Human Services), proposed a resolution for consideration at the August JEMCO meeting stating that "JEMCO resolves that the FSM Office of Compact Management, in consultation with the budget offices in the national and each of the state governments, should develop budgets for fiscal years 2007 through 2009 that, at a minimum, ensure the health and education sectors fulfill their strategic outcomes, [annual] decrements notwithstanding." This resolution was adopted unanimously at the August 15-16, 2005 JEMCO meeting.
Recommendation: To improve grant administration and oversight and to facilitate planning for the effective use of compact funding, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management Committee, in coordination with other U.S. agencies that participate in this committee, to work with the FSM government to outline specific actions that the FSM government will take in managing and monitoring day-to-day sector grant operations to ensure compliance with all grant terms and conditions.
Agency Affected: Department of the Interior
Status: In process
Comments: No action reported.
Recommendation: To improve grant administration and oversight and to facilitate planning for the effective use of compact funding, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management and Financial Accountability Committee, in coordination with other U.S. agencies that participate in this committee, to work with the RMI government to establish sector grant levels that will assist in promoting long-term development goals such as economic advancement and budgetary self-reliance.
Agency Affected: Department of the Interior
Status: In process
Comments: No action reported.
Recommendation: To improve grant administration and oversight and to facilitate planning for the effective use of compact funding, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management and Financial Accountability Committee, in coordination with other U.S. agencies that participate in this committee, to work with the RMI government to establish a time frame for the completion of an RMI government plan to manage decreasing annual grant amounts in a strategic fashion.
Agency Affected: Department of the Interior
Status: In process
Comments: No action reported.
Recommendation: To improve grant administration and oversight and to facilitate planning for the effective use of compact funding, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of the Joint Economic Management and Financial Accountability Committee, in coordination with other U.S. agencies that participate in this committee, to work with the RMI government to outline specific actions that the RMI government will take in managing and monitoring of day-to-day sector grant operations to ensure compliance with all grant terms and conditions.
Agency Affected: Department of the Interior
Status: In process
Comments: No action reported.
